Employers heading into the renewal season are facing a self-funded health plan landscape that looks meaningfully different from just two years ago. Million-dollar claims have gone from rare to common, the medical cost trend keeps coming in higher than projected, and new federal rules are about to change how pharmacy benefit managers have to operate. Here’s what the data actually shows, and what it means for how your business should approach your employee benefits plan renewal.
Key takeaways
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Nearly half of self-funded plan sponsors, 49%, reported at least one claim exceeding $1 million in 2025, more than double the 23% that reported one in 2024, according to survey data cited in QBE North America’s 2026 Accident and Health Market Report.
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PwC’s Health Research Institute now projects medical cost trend will reach 9.0% in 2027, the highest level in 17 years, following upward revisions to its 2024 and 2025 estimates.
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Cancer remains the single largest driver of high-cost claims, accounting for roughly 35% to 36% of stop-loss reimbursements according to separate reports from Tokio Marine HCC and QBE.
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Children under age 10 account for 39% of all stop-loss claims exceeding $1 million, more than triple any other age group, according to Tokio Marine HCC’s 2026 Annual Market Report.
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A new federal law and a related Department of Labor proposed rule, both effective in early 2026, require pharmacy benefit managers to disclose compensation and pass through 100% of manufacturer rebates to larger self-funded plans.
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Self-funded health plans now cover 67% of U.S. workers with employer coverage, according to KFF’s 2025 Employer Health Benefits Survey, extending well beyond the large employers that have traditionally self-funded.
Million-Dollar Claims Have Gone From Rare to Routine
For years, a single claim exceeding $1 million was treated as a catastrophic, once-in-a-while event for a self-funded employer. That’s no longer accurate. Nearly half of self-funded plan sponsors, 49%, reported at least one claim above $1 million in 2025, more than double the 23% that reported one just a year earlier, according to survey data cited in QBE North America’s 2026 Accident and Health Market Report.
Separately, Tokio Marine HCC’s 2026 Annual Market Report, which draws on six years of the insurer’s own proprietary claims data, found that claims above $2 million have risen 213% since 2020. For plan sponsors, that shift changes the entire conversation around stop-loss coverage: a $1 million claim needs to be planned for as a routine possibility, not an outlier.
Medical Cost Trend Keeps Coming In Higher Than Expected
Medical cost trend, the annual rate at which healthcare costs are expected to rise, has repeatedly outpaced prior forecasts. PwC’s Health Research Institute, which surveys and interviews actuaries at dozens of U.S. health plans covering more than 100 million members each year to produce its annual medical cost trend outlook, revised its 2024 and 2025 estimates upward and now projects a 9.0% medical cost trend for 2027, the highest level in 17 years.
PwC attributes the increase to a mix of factors, including providers’ growing use of AI-enabled revenue optimization tools, rising drug prices, sustained behavioral health utilization, and escalating out-of-network payment disputes. For employers building 2026 and 2027 budgets, that means the cost trend assumptions used in past renewals are likely understating what’s actually coming.
Cancer Remains the Top Driver of High-Cost Claims
Across every major stop-loss report published this year, one finding is consistent: cancer is the leading driver of catastrophic claims. Tokio Marine HCC’s 2026 Annual Market Report found that cancer accounts for just over 35% of total paid stop-loss claims, while QBE North America’s 2026 Accident and Health Market Report puts neoplasms, the broader diagnostic category that includes cancer, at 36% of stop-loss claim reimbursements, the leading diagnosis at every deductible level. Both reports point to the same underlying pressure: longer inpatient stays, more advanced and more expensive treatment protocols, and the growing use of high-cost specialty oncology drugs.
Children Under 10 Are an Outsized Stop-Loss Risk
One of the more counterintuitive findings in this year’s data involves the youngest covered dependents. According to Tokio Marine HCC’s 2026 Annual Market Report, children under age 10 account for 39% of all stop-loss claims exceeding $1 million, more than three times the share of any other age group. The report attributes most of this to perinatal, neonatal, and congenital conditions, with infants under age one averaging $1.37 million in claim severity for claims above $500,000.
Tokio Marine HCC links part of this trend to a rise in catastrophic neonatal claims tied to maternal health factors, including complications from later-age pregnancies. This is a segment of plan risk that’s easy to overlook when reviewing renewal data by employee category alone, since the exposure sits with dependents rather than employees.
Specialty Drugs Are Reshaping Pharmacy Spend
Pharmacy costs are outpacing medical cost trend, and specialty drugs are the reason why. According to Amwins’ 2026 State of the Market Outlook, pharmacy trend is running roughly 2.5 percentage points above medical trend and is projected to reach 11% in 2026. Specialty medications, which account for less than 2% of all prescriptions, now drive close to half of total drug spend. That concentration means a small number of high-cost prescriptions, often for conditions like cancer, autoimmune disorders, or rare diseases, can move an entire plan’s pharmacy budget on their own.
Behavioral Health Costs Are Rising Quietly
Behavioral health hasn’t drawn the same attention as cancer or specialty pharmacy, but PwC’s research flags it as a significant and accelerating cost driver. Inpatient behavioral health claims are up nearly 80% and outpatient claims nearly 40%, and roughly one in three health plan actuaries surveyed by PwC named behavioral health a top inflator, projecting a 10% to 20% trend for the category in 2026. Reduced stigma around seeking mental health treatment is part of what’s driving increased utilization, which means this cost pressure is more likely to grow than fade.
New Federal PBM Transparency Rules Take Effect
Pharmacy benefit manager oversight changed substantially in early 2026. The Consolidated Appropriations Act of 2026, signed into law on February 3, 2026, includes a title dedicated to lowering prescription drug costs that requires pharmacy benefit managers to provide detailed compensation reports to larger self-funded plans, generally those covering at least 100 employees, and mandates that 100% of manufacturer rebates be passed through to the plan.
Separately, the U.S. Department of Labor’s Employee Benefits Security Administration proposed its own rule in January 2026 aimed at improving transparency into PBM fee disclosure, which the agency has described as one of the most significant federal reforms of pharmacy benefit arrangements in decades. For self-funded employers, this is a direct opportunity: it’s worth reviewing your current PBM contract now to confirm it already reflects these disclosure and rebate pass-through requirements.
Network Discounts Alone Aren’t a Strategy
A recurring theme across this year’s stop-loss reports is that negotiated network discounts, by themselves, aren’t enough to control costs the way they once did. Active claims management is proving to be the more effective lever. Tokio Marine HCC’s 2026 Annual Market Report disclosed that its payment-integrity and specialty-claims programs generated more than $30 million in savings in 2025 alone. That kind of result comes from actively managing high-cost claims as they happen, not simply relying on a discounted rate card after the fact.
The Stop-Loss Market Is Tightening
Employers should also expect the stop-loss market itself to keep getting more selective. According to Amwins’ 2026 State of the Market Outlook, stop-loss premium has increased 250% since 2016, and claims exceeding $1 million spiked 61% between 2021 and 2024. That combination is putting real pressure on carrier margins, and the market response has been more selective underwriting and a greater emphasis on cost containment credentials when evaluating a group. Employers who can demonstrate strong claims management practices are likely to fare better at renewal than those relying on network discounts alone.
Self-Funding Is Reaching Smaller Employers
Self-funded health plans are no longer just a large-employer strategy. According to KFF’s 2025 Employer Health Benefits Survey, 67% of covered workers with employer-sponsored coverage are now enrolled in a self-funded plan, including a meaningful share at firms with as few as 10 to 199 workers.
As more small and midsize employers move to self-funding, many are encountering stop-loss underwriting, claims volatility, and PBM contract complexity for the first time, all of which makes experienced broker guidance more important, not less.
Frequently Asked Questions
Why are $1 million+ claims becoming more common in self-funded health plans?
A combination of factors is driving the increase, including more advanced and expensive cancer treatment protocols, rising neonatal and pediatric claim severity, and the growing cost of specialty pharmaceuticals. Nearly half of self-funded plan sponsors reported a claim exceeding $1 million in 2025, according to QBE North America’s 2026 Accident and Health Market Report.
What is the biggest driver of high-cost claims in self-funded plans?
Cancer. Separate 2026 reports from Tokio Marine HCC and QBE North America both identify cancer, or the broader neoplasm diagnostic category, as the single largest driver of stop-loss claims, accounting for roughly 35% to 36% of total reimbursements.
Why do children under 10 account for such a large share of stop-loss claims?
Most large claims involving children under 10 stem from perinatal, neonatal, and congenital or chromosomal conditions, according to Tokio Marine HCC’s 2026 Annual Market Report, which found this age group accounts for 39% of all stop-loss claims exceeding $1 million.
What changed with pharmacy benefit manager (PBM) regulations in 2026?
Federal legislation signed in February 2026 now requires PBMs to disclose their compensation to larger self-funded plans and pass through 100% of manufacturer rebates. A separate Department of Labor proposed rule aims to further improve transparency into PBM fees.
Is self-funding still just for large employers?
No. According to KFF’s 2025 Employer Health Benefits Survey, 67% of covered workers are now in self-funded plans, and that share includes a growing number of small and midsize employers, not just large corporations.
Do network discounts still control healthcare costs effectively?
Not on their own. Recent stop-loss market reports point to active claims management, such as payment-integrity review and specialty claims oversight, as a more effective way to control costs than negotiated network discounts alone.
Why Partner With SandStone
Renewal season is a lot harder to navigate when the underlying data keeps shifting mid-year. SandStone Insurance Partners’ Employee and Group Benefits team tracks stop-loss market conditions, PBM contract requirements, and claims trends year-round, so your renewal strategy reflects where the market actually is, not where it was a year ago. Contact your SandStone advisor today to review your self-funded plan ahead of renewal.
Disclaimer: Coverage terms, conditions, and exclusions vary by policy and insurer. The above material is for general educational purposes only and is not a substitute for professional insurance or legal advice. The recommendation(s), advice, and contents of this material do not address every possible legal obligation, hazard, code violation, loss potential, or exception to best practice. Nothing in this material should be construed as establishing or confirming insurance coverage with SandStone Insurance Partners.
